BHP Investors Approve Mining’s Biggest Spinoff in Decade

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The creation of South32 Ltd., the company being spun off from BHP Billiton Ltd. in mining’s biggest such deal in almost a decade, was approved by shareholders.

BHP said 98.05 percent voted in favor of splitting off 22 assets from the world’s largest miner into the new business.

South32, starting life as the largest producer of manganese ore and operator of the biggest silver mine, will focus in its first six months on productivity before looking at acquisitions, Chief Executive Officer-elect Graham Kerr said on Wednesday.

“If we do go into the M&A space, it will be opportunistic and it will only be where we see value,” Kerr told reporters. “We’ll only pursue it if we have a mandate from investors.”

The company may be worth $11.9 billion, according to the median estimate of five analysts compiled by Bloomberg. That would make it mining’s second-largest spinoff, behind MMC Norilsk Nickel OJSC’s $14.4 billion deal to carve out Polyus Gold in 2006, data show. South32 will start trading on May 18 in Australia, the U.K. and South Africa.

BHP declined 0.8 percent to 1,598.5 pence by 3:41 p.m. in London, bringing gains for the year to 15 percent and valuing the Melbourne-based company at about $135 billion. Investors will receive one South32 share for each BHP one they own.

Declining Valuations

Banks from Investec Plc to JPMorgan Chase & Co. have cut estimates on South32’s valuation as commodity prices tumbled on oversupply and slower growth in China. Weaker prices could lower South32’s valuation and also make it more susceptible to takeover approaches, according to Investec.

“The way people value South32 will be driven by their view on commodity prices,” Kerr said. “Anyone who is interested in us has the same challenge.”

A Bloomberg Index of 22 raw materials declined 4.3 percent in the first quarter and on March 17 fell to the lowest since Aug. 5, 2002. It’s hard to predict how long the “current challenging pricing environment” will continue, Rio Tinto Group CEO Sam Walsh said April 30 in a speech in Seoul.

BHP’s decision to spin off the assets is a way to speed up cost cuts and exceed a target for annual efficiency gains of $4 billion from mid-2017, CEO Andrew Mackenzie said last month.

With 11 operations and one joint venture across five nations, South32 will focus on lowering spending and extending the life of assets that had been seen as too small to warrant funding by BHP, Kerr has said previously.

(Updates with voting numbers in second paragraph.)
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